Despite its spike in popularity, forex is not a very familiar term to people. “What is forex?” followed by “Why should I trade forex?” are two fundamental questions that require an answer.
Beginning with the first question, forex is an abbreviation for Foreign Exchange and it is used in reference to the currency trading market, the largest and most liquid market in the world today.
Currency exchange transactions happen on a constant basis, i.e. when an item that is priced in one currency, dollar, is bought in another currency, euro, or when somebody is visiting another country and is changing money from his country’s currency to the local one.
As of 2010, daily forex trading transactions have been estimated to an unprecedented turnover of $4 trillion dollars. Given the existence of the well-known stock, futures and commodity trading markets why should someone choose to trade forex?
While stock, futures and commodities trading would have you going through thousands of companies and products, forex trading simply relies on you choosing a pair of currencies, like yen-euro or US dollar- British pound, predicting whether the interest rates will rise or fall and finally choosing to go “short” (Sell) or go “long” (buy).
Availability and Accessibility.
Forex trading is available online, 24 hours a day, 5 working days a week making it easy to trade for those who have to maintain a full time job. Be it before work or after, even the busiest interested trader can participate. There is no centralized government body and no geographical location that binds and regulates transactions. Transactions are self-regulated between the traders and can happen anywhere in the world. There is no way for a transaction to get stuck and you can exit at any time to minimize your losses.
Unlike the stock market there is no need for a middleman for trading to take place even though forex brokers exist and are sometimes necessary. A forex broker however, will not charge extra commission on a deal and will keep the minimal commission costs at the lowest possible.
High Predictability and High Profitability.
The stock market depends solely on the rise of a stock value for profitability while forex can profit both on the rise and on the fall of exchange values, thus providing opportunities where there normally would be losses. Through the use of online trading platforms and real time monitoring and analysis of forex charts there is a much higher predictability chance than any other alternative trading option. Most importantly, the availability of 50:1, 100:1 and 200:1 leverages can yield far greater profits than the usual meager 2:1 leverage of stock and futures trading. However, caution is advised regarding leverage in forex since it can destroy as easily as it can make profits.
Being much simpler, far more available and far more accessible than any other trading market while providing the greatest opportunities for high profitability the foreign exchange market is one of the best “places” to trade and maximize your financial growth. To conclude in answering “Why trade forex?”
Because it’s better.